I'm Colette Auclair, and here is Schwab's early look at the markets for Monday, May 4.
Last week saw new highs for Wall Street after an April when the S&P 500 Index rose 10%, its best monthly performance since late 2020. The week ahead brings fresh challenges if the market is going to pad those gains, including a host of jobs data and several important tech earnings results.
Strong earnings have been the theme for several weeks, providing most of the power behind the April advance. With 63% of S&P 500 companies reporting through Friday, blended earnings growth—including companies reporting already and estimates for those to come--is an outstanding 27.1%. This would be the highest since 32% in the fourth quarter of 2021, if it lasts, FactSet said.
About 84% of reporting companies have beaten earnings estimates. Much of the huge earnings growth was fueled by tech, but other sectors have also enjoyed solid results including discretionary, materials, and financials.
As the new week started, investors monitored mixed signals about the Middle East. The Trump administration is preparing new battle plans, media reports said and wasn't impressed with Iran's latest peace proposal.
A slew of tech earnings loom, highlighted by Palantir later today followed by Advanced Micro Devices and Arm Holdings later this week.
"Given the recent tech rally, particularly in chips, investor expectations are high, and therefore, the potential for a 'sell on the news' reaction to results is elevated," said Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research (SCFR).
When Palantir reports, analysts expect earnings per share to rise 114.6% year over year and revenue to climb 74%. Last time Palantir reported, in early February, earnings topped Wall Street's expectations and the stock rallied. Since then, it's mainly marched in place, not keeping up with a broader rally in the tech sector.
Palantir is typically lumped in with other software stocks, though its business serves a narrow niche heavily dependent on government contracts. Software as a sector continues to struggle, with key earnings from Adobe and Salesforce due later this month.
Earnings from Berkshire Hathaway over the weekend drew attention as new CEO Greg Abel took over as host of the annual meeting from legendary CEO Warren Buffett. The company's outlook often has an impact on markets and could be a factor today.
Beyond tech, there's plenty of earnings action this week even if the pace slows from last week. Walt Disney stands out Wednesday morning. That same day features results from Apollo Global Management, a private equity firm that suffered sharp market losses earlier this year amid concerns about the health of the private credit market. Blue Owl, another private credit firm, climbed 10% after reporting Thursday.
Economic data is less of a factor Monday before picking up as the week moves along. The highlight is nonfarm payrolls on Friday, with analysts pegging jobs growth of just 73,000, down from 178,000 in March. Unemployment is expected to remain at 4.3%, historically low.
In data Friday, April's ISM Manufacturing Index came in at 52.7%, slightly below the Briefing.com consensus of 53.1%, and even with March. Anything above 50% shows expansion. On a less positive note, the employment index of the report fell to 46.4% from 48.7%, and prices soared to 84.6% from 78.3%, the biggest monthly jump in four years. Higher prices and weaker employment could be a bearish brew if the same type of reading show up in other economic reports.
In another data point, the Atlanta Fed's GDPNow forecast for the second quarter fell to 3.5% from the previous 3.7% estimate.
Tomorrow's data includes ISM services, which has generally remained above 50% over the last few months. New home sales and the March Job Opening and Labor Turnover Survey (JOLTS) are also due Tuesday. Fed speeches return this week following the quiet period around last week's meeting, with Fed Governors Christopher Waller and Lisa Cook making remarks Wednesday.
Speaking of the Fed, the end of Jerome Powell's chairmanship on May 15 also likely marks the last day Gov. Stephen Miran will be a member of the Fed's board. Assuming Kevin Warsh takes over as chairman that day, Powell will stay as Fed governor, leaving Miran without a seat.
"Miran was the ultra-uber dove," said Collin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research, or SCFR. "If Powell had decided to leave, then President Trump would be able to appoint somebody else. Possibly it might have been Miran--who would have had to go through confirmation again. But an important facet of this looking ahead is that the uber dove is not a member of the Fed anymore." That, combined with a hawkish dissent from three policymakers last week, has rate cut odds relatively low for the rest of the year, according to the CME Fed Watch Tool.
Another Fed item to watch is the Supreme Court's decision on President Trump's attempt to fire Cook. A ruling has been long awaited and could come sometime soon.
Treasury yields barely moved Friday, in part on Thursday's light gross domestic product (GDP) reading, but remain near recent one-month highs. The 30-year bond yield touched 5% Thursday and the 10-year yield rose 10 basis points to 4.38% on the week, a moderate gain. Most of the data has been solid and the Fed appears more hawkish, which could keep yields elevated. Still, 4.5% for the 10-year note is likely technical resistance.
The yen climbed sharply against the dollar Friday on reports by Reuters and Bloomberg that the Bank of Japan (BOJ) might have intervened to support its ailing currency. A drop in the dollar, if extended, could put pressure on Treasuries as well, powering yields and hurting U.S. stocks.
A more active BOJ could also cause higher yields in that market, meaning some money may migrate there from the U.S. and hurt U.S. asset prices. The European Central Bank (ECB), too, is expected to raise rates once or twice this year, analysts told the media. Chances of a rate move in the U.S. remained unlikely as the old week closed.
Major indexes mostly gained Friday, with the S&P 500 Index, Russell 2000, and Nasdaq Composite all making new highs, but it wasn't a convincing day in terms of market breadth and indexes finished well off their intraday peaks. A 1.6% gain for info tech likely kept the market from going red, with seven of 11 S&P 500 sectors ending flat to lower. Volume stayed below average for both the New York Stock Exchange and the Nasdaq.
None of the sector losses were steep, though energy fell 1% as oil prices backtracked on hopes for weekend progress in the war. That said, oil rose sharply last week, and the U.S. weekly rig count rose by only three, according to Baker Hughes, despite roaring export demand.
Checking individual movers Friday, Apple gained more than 3%, though shares finished off intraday highs. Apple's earnings and revenue topped expectations while iPhone sales growth came in slightly short of consensus. Gross margin impressed at 49.3%, above the consensus of 48.4%, and the company announced more share buybacks and raised its dividend. There is concern about higher memory-related chip costs hurting margin down the road.
Western Digital fell 2% despite exceeding earnings and revenue expectations, raising guidance and raising its dividend. Shares have been on a parabolic rally and the early stumble might reflect post-earnings profit taking.
Crypto-related stocks like Circle Internet Group and Strategy rallied Friday as bitcoin futures rolled up 2.6% gains to come within range of their highest level since before the war.
Amgen fell almost 5% despite an earnings beat as investors seemed disappointed by guidance.
SanDisk turned around early losses Friday to post solid gains after earnings and outlook topped consensus. Micron, another memory chip giant, also reversed losses.
Clorox fell 10% as the company cut its outlook even though it posted higher-than-expected quarterly results. The guidance cut reflected an acquisition.
The PHLX Semiconductor Index, which got clipped earlier in the week by concerns about demand at OpenAI, rose 1% Friday and ended the week with light gains to post new all-time highs. Some chip and AI-related stocks making headway Friday included CoreWeave, Oracle, Intel, and Advanced Micro Devices. AI leader Nvidia trailed the pack and finished the week well below its highs, hurt by worries about chip competition from other mega-caps.
Software shares found footing Friday ahead of earnings from many major firms in coming weeks. Salesforce posted 4% gains, and Palantir rose 3.5%. Other software gainers Friday included ServiceNow, Microsoft, and Adobe.
Roku rose 6%, responding to better-than-expected quarterly results and higher guidance. Subscriptions revenue rose 30% year over year.
Rivian fell 8% despite earnings beating Wall Street consensus and a 20% rise in delivery volumes year over year. It's also increasing production capacity. The weakness might reflect investors being disappointed the company didn't share more details about demand for its new R2 electric SUV, Bloomberg reported.
The Dow Jones Industrial Average® ($DJI) slipped 152.87 points Friday (-0.31%) to 49,499.27; the S&P 500 Index (SPX) rose 21.11 points (+0.29%) to 7,230.12, and the Nasdaq Composite® ($COMP) climbed 222.13 points (+0.89%) to 25,114.44.
For the week, the DJIA rose 0.55%, the S&P 500 Index climbed 0.91%, and the Nasdaq Composite added 1.12%.